New Home Sales: Bad News for the Economy

January new home sales were reported yesterday and they fell the most since 2009 when the economy was in recession. New home prices plunged to a two-year low. Anyone expecting an economic recovery in the US and more Fed rate hikes should wake up and smell the coffee.

Why do new home sales matter? First, they are a great economic indicator because home construction is a major employer and new home sales drive the purchase of appliances and building supplies. Second, new home sales have been a primary focus of government and Federal Reserve policies to stimulate the economy. The latest numbers seem to suggest those policies are not working.

New home sales collapsed by 9.2% in January, bringing the Seasonally Adjusted Annual Rate to 494k (December 2014 levels).

Here is the 15 year history of new home sales. Note how anaemic the so-called housing recovery has been since 2011 (see below):

Worse still, the average new home price has tumbled in recent months from $295,800 to $278,000. Remember how the industry was claiming that prices were being pushed up by a shortage of new homes? Not so much. Inventory measured in months of supply surged in January from 5.1 to 5.8.

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Who is Wayne Wile?

Wayne Wile is an international investment advisor with more than five decades of experience in wealth management. He has spent the majority of his career working with institutional and high net worth investors, seeking to mitigate risk while optimizing portfolio performance.

Wayne began work in the mailroom of a brokerage firm when he was 17 years of age and rose to a senior executive position. He was recruited for key jobs with several nationally recognized investment firms in Canada before striking out on his own.

Wayne’s methods as a trader are governed by simplicity and self-discipline. He says that losses are the children of greed and fear while profits are the spawn of patience and trend-following. “Time is always on your side. Let the market tell you what it wants to do and keep it company. Never chase an idea you think you have missed. There is always another one coming along.”

Wayne is especially opposed to sophisticated trading strategies that try to predict the future based on mathematical analysis of historical data. “These systems routinely destroy far more wealth than they create,” he says. “Only a highly intelligent, well-educated individual would be foolish enough to do this stuff. Successful traders need to stop analyzing and learn to listen to what the market is telling them every day.”

Wayne resides in the Cayman Islands but considers himself a citizen of the world.